The recent Ethiopian Airlines crash and subsequent grounding of Boeing’s global fleet of 737 Max aircraft could potentially be the largest ever non-war claim incurred by the aviation reinsurance market, according to Willis Re.

Source: AP Photo/Mulugeta Ayene

The broker said that losses from the incident could erode three to four years’ worth of reinsurers’ global excess of loss premium.

While the cost of the plane itself is only expected to total $50-60 million, Boeing is expected to incur significant liability claims if its suspended 737 model is found to be at fault.

James Vickers, Chairman of Willis Re International, told Reuters that liability claims for the passengers’ loss of life and in relation to the grounded aircraft could total around $1 billion.

This is a considerable sum for the aviation reinsurance market, which Vickers explained was “very small and very, very specialist.”

The Ethiopian Airlines crash, which resulted in the death of all 157 passengers, was the second to involve a Boeing 737 Max 8 in just five months, following the fatal Lion Air crash in Indonesia last October.

The direct aviation market also carried forward its momentum from Q4 2018 and January 1, with some element of softening due to overcapacity, the broker said.

Analysts explained that premium rates have been increasing across all business lines following a number of unprofitable years, driven by M&A and some withdrawals in 2018 constricting market capacity.

Additionally, many of the live renewals were already quoted when the Ethiopian/Boeing loss occurred and reinsurers have chosen not to penalise buyers for ongoing losses, the firm noted.

Proportional treaty placements for regional non-major aviation business have remained stable, while for international major-risk treaties the improvement in underlying premium rates has encouraged reinsurers to grant small improvements in ceding commissions.

Willis Re said that it remains to be seen how severely excess of loss and quota share leaders will react to negative margins going forward.